Gordon Brown was tonight banking on a strong economic bounce back after admitting that the economy had endured its "toughest and most challenging year".
In his annual Pre-Budget Report, the Chancellor was forced to slash his growth forecast for the current year to just 1.75% compared to the buoyant 3% to 3.5% he was predicting just eight months ago in the Budget.
He also disclosed that borrowing this year would rise by another £5 billion over and above his Budget forecast to reach £37 billion.
But he predicted growth next year would recover to a healthy 2% to 2.5%, rising to between 2.75% and 3.25% in the two years after that, while the level of borrowing would start to subside.
Mr Brown blamed a "virtual doubling" of world oil prices for the difficulties the economy had encountered.
And he sought to sweeten the pill with a £2 billion raid on the profits of the North Sea oil companies to fund a package of assistance for pensioners while enabling him to freeze duty on petrol and diesel.
"The task of this Pre-Budget Report is to meet and master the global economic challenge, making the critical decisions to secure Britain's long term economic future," he told MPs.
However shadow chancellor George Osborne hit back, declaring: "This is a Chancellor forced into the humiliation of admitting he got it all wrong. This is a Chancellor who is past his sell-by date.
"This is a Chancellor who is holding Britain back."
Mr Osborne said: "I don't remember him telling the electorate before the General Election that the economy was facing a tough and challenging year.
"What he told the country at the time of the last election was not true. "
The £690 million package for pensioners will guarantee the annual £200 "winter warmer" fuel payment for the rest of the Parliament.
And Mr Brown promised help for half a million pensioner homes without central heating, with systems installed free of charge for the poorest and a grant of £300 towards the costs for the rest.
In other measures, Mr Brown said an agreement had been struck with the banks and building societies to use unclaimed assets in dormant accounts to fund new youth and community facilities.
It would include funding gap year volunteering in Britain and abroad for young people who would not otherwise be able to afford to go.
Preparations for the 2012 Olympics in London and England's 2018 World Cup bid will be given a boost with the creation of new National Sports Foundation.
To increase the numbers of new houses available, Mr Brown said he would ask local councils to bring forward more brownfield areas for development.
Local authorities would be "obliged to accelerate housing consent" in planning decisions.
Real Estate Investment Trusts would be set up to increase funding and consultation would begin on plans to allow councils to get "a fair share of planning gains", where land is sold at an increased price with planning consent.
Three of the biggest building societies were joining the Government in boosting shared equity schemes to make home ownership more affordable - through effectively subsidising mortgages - and Mr Brown said there was also a possible new role for housing associations.
The Chancellor also announced more cash for the police and emergency services and British forces serving overseas.
He said there would be an extra £135 million for anti-terrorism measures at home and an extra £580 million to cover forces' operations in Afghanistan, Iraq and other theatres.
Mr Brown also sought to end controversy over the Child Tax Credit system, promising more leeway for families to change their income over a year before changes in payments came into effect and a more lenient approach to re-payments of money overpaid.
The Chancellor said he would support a nationwide network of innovation centres to boost research and development.Reuse content